How Credit Cards Can Protect Consumers

Credit cards offer shoppers the best protection from scams and other deceptive practices, a new study finds.

The research, from the online site Card Hub, found that all four major card networks — American Express, Discover, MasterCard and Visa — provide a zero liability guarantee for unauthorized credit card transactions

Card Hub CEO Odysseas Papadimitriou said credit cards offer the safest type of payment method for several reasons, including a payment structure that makes it much easier to deal with fraud.

"With a credit card, you have up to 25 days to pay your bill once your monthly statement becomes available," Papadimitriou said. "It’s therefore likely that you'll notice and report suspicious charges before you actually have to put any of your own money toward them."

The 2013 Consumer Fraud Liability Study showsthat, overall, while federal law and card network policies limit consumers' potential liability for unauthorized transactions, such protection is far from straightforward. The safeguards face limitations based on a number of factors, including card network, issuer, reporting time frame and payment vehicle.

The research revealed that Discover and American Express offer the most protection for ATM transactions, because cardholders are not responsible for unauthorized transactions. While Visa and MasterCard do not offer added liability protection for ATM transactions, the bank issuing each card might.

"Discover and American Express really set themselves apart when it comes to liability for unauthorized ATM use, but to be fair it’s much easier for them to do so given their tiny share of the ATM market," Papadimitriou said. "Nevertheless, while VISA and MasterCard fall back on federal law and supplemental protections offered at the discretion of issuing banks, Discover and Amex give their customers one less thing to worry about, and thereby further enhance their reputations for superior customer service."

Based on the study, Card Hub recommends several tips for consumers looking to minimize their vulnerability to losses resulting from unauthorized transactions, including:

Use credit cards as your primary spending vehicle: Major card network policy shields all consumers from any fraud liability for unauthorized credit card transactions. The alternatives are less secure given their debit-based nature and the uneven liability safeguards that apply to them.

Regularly review accounts: The best way to ensure minimum fraud liability is to spot any unauthorized transaction as soon as possible and report it to the financial institution that issued the card. Make it a practice to review account activity weekly. Also remember to save receipts in order to compare them with the transactions that appear on the statement.

Sign for debit card transactions: Though debit card transactions "verified" by signature account for a relatively higher share of all fraudulent debit card transactions than those "verified" by PIN, consumer liability is lower when you use a signature. That's because card networks want to promote such transactions given their greater profitability.

Don’t leave room for doubt: Never leave the final amount of a transaction open for interpretation. For example, make sure to always fill in the tip field on a bill, even when not leaving one.

Be careful when sharing: Do not provide financial information to anyone unless they are reputable and you reach out to them first. In other words, don't share information with anyone who proactively contacts you over the phone or via e-mail.

In addition, never send private account information via unsecure emails. And make sure, when making online purchases, that the website has an address that starts with "https" and a domain name that matches the name of the site you're visiting. Consumers should also shred any documents that contain financial account numbers before throwing such paperwork away.

This research was based on a combination of federal law, marketing copy and a survey of both the largest card networks and a number of major national retailers.

Editors Picks

Chad Brooks

Chad Brooks is a Chicago-based freelance writer who has nearly 15 years experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.